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Poverty in India

Poverty rate map of India by prevalence in 2012, among its states and union territories

Poverty is a significant issue in India, despite having one of the fastest-growing economies in the world, clocked at a growth rate of 7.6% in 2015, and a sizable consumer economy. The World Bank reviewed and proposed revisions in May 2014, to its poverty calculation methodology and purchasing power parity basis for measuring poverty worldwide, including India. According to this revised methodology, the world had 872.3 million people below the new poverty line, of which 179.6 million people lived in India. In other words, India with 17.5% of total world's population, had 20.6% share of world's poorest in 2011.[1][2] As of 2014, 58% of the total population were living on less than $3.10 per day.[3] According to the Modified Mixed Reference Period (MMRP) concept proposed by World Bank in 2015, India's poverty rate for period 2011-12 stood at 12.4% of the total population, or about 172 million people; taking the revised poverty line as $1.90.[4][5][6]

India Poverty rate since 1993 based on World Bank $1.99 PPP poverty line.

The World Bank has been revising its definition and benchmarks to measure up poverty since 1990, with a $2 per day income on purchasing power parity basis as the definition in use from 2005 to 2013.[7] Some semi-economic and non-economic indices have also been proposed to measure poverty in India; for example, the Multi-dimensional Poverty Index placed 33% weight on number of years spent in school and education and 6.25% weight on financial condition of a person, in order to determine if that a person is poor.[8]

The different definitions and different underlying small sample surveys used to determine poverty in India, have resulted in widely different estimates of poverty from 1950s to 2010s. In 2012, the Indian government stated 22% of its population is below its official poverty limit.[9] The World Bank, in 2011 based on 2005's PPPs International Comparison Program,[10] estimated 23.6% of Indian population, or about 276 million people, lived below $1.25 per day on purchasing power parity.[11][1] According to United Nation's Millennium Development Goals (MDG) programme 270 millions or 21.9% people out of 1.2 billion of Indians lived below poverty line of $1.25 in 2011-2012.[12]

From late 19th century through early 20th century, under British colonial rule, poverty in India intensified, peaking in the 1920s.[13][14] Famines and diseases killed millions each time.[15][16] After India gained its independence in 1947, mass deaths from famines were prevented. Rapid economic growth since 1991, has led to sharp reductions in extreme poverties in India.[17][18] However, those above poverty line live a fragile economic life.[19]

As per the methodology of the Suresh Tendulkar Committee report, that the population below the poverty line in India in 2009-2010 was 354 million (29.6% of the population) and that in 2011-2012 was 269 million (21.9% of the population).[20] The Rangarajan Committee said in 2014 that the population below the poverty line in 2009-2010 was 454 million (38.2% of the population) and that in 2011-2012 was 363 million (29.5% of the population).[21] Deutsche Bank Research estimated that there are nearly 300 million people who are middle class.[22] If former trends continue, India's share of world GDP will significantly increase from 7.3% in 2016 to 8.5% by 2020.[23] In 2015, around 170 million people, or 12.4%, lived in poverty (defined as $1.90 (Rs 123.5)), a reduction from 29.8% in 2009.[24][25]

The Asian Development Bank estimates India's population to be at 1.28 billion with an average growth rate, from 2010-2015, at 1.3%. In 2014, 49.9% of the population aged 15 years and above were employed. However, there are still 21.9% of the population who live below the national poverty line.[26] The World Poverty Clock shows real-time poverty trends in India, which are based on the latest data, of the World Bank, among others.

Contents

Poverty rates are sensitive to definition used. In 2014, new World Bank benchmarks based on 2011 purchasing power parity basis suggest much lower poverty rates in India, and much higher in other nations.[2]

A comparative map of poverty in India and other countries in 2012, at national poverty line, according to the World Bank.

Economic measures

There are several definitions of poverty, and scholars disagree as to which definition is appropriate for India.[27][28] Inside India, both income-based poverty definition and consumption-based poverty statistics are in use.[29] Outside India, the World Bank and institutions of the United Nations use a broader definition to compare poverty among nations, including India, based on purchasing power parity (PPP), as well as nominal relative basis.[30][31] Each state in India has its own poverty threshold to determine how many people are below its poverty line and to reflect regional economic conditions. These differences in definition yield a complex and conflicting picture about poverty in India, both internally and when compared to other developing countries of the world.[2]

As with many countries,[32] poverty was historically defined and estimated in India using a sustenance food standard. This methodology has been revised. India's current official poverty rates are based on its Planning Commission's data derived from so-called Tendulkar methodology.[33] It defines poverty not in terms of annual income, but in terms of consumption or spending per individual over a certain period for a basket of essential goods. Further, this methodology sets different poverty lines for rural and urban areas. Since 2007, India set its official threshold at ₹ 26 a day ($0.43) in rural areas and about ₹ 32 per day ($0.53) in urban areas.[34] While these numbers are lower than the World Bank's $1.25 per day income-based definition, the definition is similar to China's US$0.65 per day official poverty line in 2008.[35]

The World Bank's international poverty line definition is based on purchasing power parity basis, at $1.25 per day.[36][37] This definition is motivated by the fact that the price of the same goods and services can differ significantly when converted into local currencies around the world. A realistic definition and comparison of poverty must consider these differences in costs of living, or must be on purchasing power parity (PPP) basis. On this basis, currency fluctuations and nominal numbers become less important, the definition is based on the local costs of a basket of essential goods and services that people can purchase. By World Bank's 2014 PPP definition, India's poverty rate is significantly lower than previously believed.[2]

Mixed, semi-economic and non-economic measures

As with economic measures, there are many mixed or non-economic measures of poverty and experts contest which one is most appropriate for India. For example, Dandekar and Rath in 1971 suggested a measure of poverty rate that was based on number of calories consumed.[38] In 2011, Alkire et al. suggested a poverty rate measure so-called Multi-dimensional Poverty Index (MPI), which put only 6.25% weight to assets owned by a person and placed 33% weight on education and number of years spent in school.[8] These non-economic measures remain controversial and contested as a measure of poverty rate of any nation, including India.[39][40]

National poverty lines comparison(Note: this is historical data, not current)

India determines household poverty line by summing up the individual per capita poverty lines of the household members. This practice is similar to many developing countries, but different from developed countries such as the United States that adjust poverty line on an incremental basis per additional household member. For example, in the United States, the poverty line for a household with just one member was set at $11,670 per year for 2014, while it was set at $23,850 per year for a 4-member household (or $5963 per person for the larger household).[46] The rationale for the differences arise from the economic realities of each country. In India, households may include surviving grandparents, parents and children. They typically do not incur any or significant rent expenses every month particularly in rural India, unlike housing in mostly urban developed economies. The cost of food and other essentials are shared within the household by its members in both cases. However, a larger portion of a monthly expenditure goes to food in poor households in developing countries,[47] while housing, conveyance and other essentials cost significantly more in developed economies.

For its current poverty rate measurements, India calculates two benchmarks. The first includes a basket of goods including food items but does not include the implied value of home, value of any means of conveyance or the economic value of other essentials created, grown or used without a financial transaction, by the members of a household. The second poverty line benchmark adds rent value of residence as well as the cost of conveyance, but nothing else, to the first benchmark.[48] This practice is similar to those used in developed countries for non-cash income equivalents and poverty line basis.[49][50]

India's proposed but not yet adopted official poverty line, in 2014, was ₹972 (US$15) a month in rural areas or ₹1,407 (US$22) a month in cities. The current poverty line is $14 per month ($0.46 per day) in rural areas and $17 per month ($0.56 per day) in urban areas.[51] India's nationwide average poverty line differs from each state's poverty line. For example, in 2011-2012, Puducherry had its highest poverty line of ₹1,301 (US$20) a month in rural and ₹1,309 (US$20) a month in urban areas, while Odisha had the lowest poverty thresholds of ₹695 (US$11) a month for rural and ₹861 (US$13) a month for its urban areas.[52]

The 19th century and early 20th century saw increasing poverty in India during the colonial era.[13][53] Over this period, the colonial government de-industrialized India by reducing garments and other finished products manufacturing by artisans in India, importing these from Britain's expanding industry with 19th century industrial innovations, while simultaneously encouraging conversion of more land into farms, and of agricultural exports from India.[54][55] Eastern regions of India along the Ganges river plains, such as those now known as eastern Uttar Pradesh, Bihar, Jharkhand and West Bengal,[56] were dedicated to producing poppy and opium, which were then exported to southeast and east Asia particularly China, with the trade an exclusive monopoly first of East India Company, and later the colonial British institutions.[57] The economic importance of this shift from industry to agriculture in India was large;[58] by 1850, it created nearly 1,000 square kilometres of poppy farms in India in its fertile Ganges plains, led to two opium wars in Asia, with the second opium war fought between 1856 and 1860. After China accepted opium trade, the colonial government dedicated more land exclusively to poppy,[55] the opium agriculture in India rose from 1850 through 1900, when over 500,000 acres of the most fertile Ganges basin farms were devoted to poppy cultivation,[59] opium processing factories owned by colonial officials were expanded in Benares and Patna, and shipping expanded from Bengal to the ports of East Asia such as Hong Kong, all under exclusive monopoly of the British. By early 20th century, 3 out of 4 Indians were employed in agriculture, famines were common, and food consumption per capita declined in every decade.[14] In London, the late 19th century British parliament debated the repeated incidence of famines in India, and the impoverishment of Indians due to this diversion of agriculture land from growing food staples to growing poppy for opium export under orders of the colonial British empire.[55][59]

Poverty was intense during colonial era India. Numerous famines and epidemics killed millions of people each.[15][60] Upper image is from 1876-1879 famine in South of British India that starved and killed over 6 million people, while lower image is of child who starved to death during the Bengal famine of 1943.

These colonial policies moved unemployed artisans into farming, and transformed India as a region increasingly abundant in land, unskilled labour and low productivity, and scarce in skilled labour, capital and knowledge.[13][14] On an inflation adjusted 1973 Rupee basis, the average income of Indian agrarian labourer was Rs. 7.20 per year in 1885, against an inflation adjusted poverty line of Rs. 23.90 per year. Thus, not only was the average income below poverty line, the intensity of poverty was severe. The intensity of poverty increased from 1885 to 1921, then began a reversal. However, the absolute poverty rates continued to be very high through the 1930s.[13][61] The colonial policies on taxation and its recognition of land ownership claims of zamindars and mansabdars, or Mughal era nobility, made a minority of families wealthy, while it weakened the ability of poorer peasants to command land and credit. The resulting rising landlessness and stagnant real wages intensified poverty.[13][62]

The National Planning Committee of 1936 noted the appalling poverty of undivided India.[63]

(...) there was lack of food, of clothing, of housing and of every other essential requirement of human existence... the development policy objective should be to get rid of the appalling poverty of the people.

— Nehru, The Discovery of India, (1946)

The National Planning Committee, notes Suryanarayana, then defined goals in 1936 to alleviate poverty by setting targets in terms of nutrition (2400 to 2800 calories per adult worker), clothing (30 yards per capita per annum) and housing (100 sq. ft per capita).[63] This method of linking poverty as a function of nutrition, clothing and housing continued in India after it became independent from British colonial empire.

These poverty alleviation goals were theoretical, with administrative powers resident in the British Empire. Poverty ravaged India. In 1943, for example, despite rising agricultural output in undivided South Asia, the Bengal famine killed millions of Indians from starvation, disease and destitution. Destitution was so intense in Bengal, Bihar, eastern Uttar Pradesh, Jharkhand and Orissa, that entire families and villages were "wiped out" of existence. Village artisans, along with sustenance farming families, died from lack of food, malnutrition and a wave of diseases.[16] The 1943 famine was not an isolated tragedy. Devastating famines impoverished India every 5 to 8 years in late 19th century and the first half of 20th century. Between 6.1 and 10.3 million people starved to death in British India during the 1876-1879 famine, while another 6.1 to 8.4 million people died during 1896-1898 famine.[64]The Lancet reported 19 million died from starvation and consequences of extreme poverty in British India, between 1896 and 1900.[65] Sir MacDonnell observed the suffering and poverty in 1900, and noted, "people died like flies" in Bombay.[66]

Minhas published his estimates of poverty rates in 1950s India as cyclical and a strong function of each year's harvest. Minhas disagreed with the practice of using calories as the basis for poverty estimation and proposed a poverty line based on real expenditure per year (Rs 240 per annum). In 1956-57, a good harvest year, he computed India's poverty rate to be 65% (215 million people).[67][68] For 1960, Minhas estimated the poverty to be 59%.[69]

A Working Group was formed in 1962 to attempt to set a poverty line for India.[70][71] This Working Group used calories required for survival, and income needed to buy those calories in different parts of rural India, to derive an average poverty line of Rs. 20 per month at 1960-61 prices.[72]

Estimates of poverty in India during the 1960s varied widely. Dandekar and Rath, on the behalf of then Indian government, estimated that the poverty rate in 1960s remained generally constant at 41%. Ojha, in contrast, estimated that there were 190 million people (44%) in India below official poverty limit in 1961, and that this below-poverty line number increased to 289 million people (70%) in 1967. Bardhan also concluded that Indian poverty rates increased through the 1960s, reaching a high of 54%.[69][73] Those above the 1960s poverty level of Rs 240 per year, were in fragile economic groups as well and not doing well either. Minhas estimated that 95% of India's people lived on Rs 458 per year in 1963-64, while the richest 5% lived on an average of Rs 645 per year (all numbers inflation adjusted to 1960-61 Rupee).[67]

Dandekar and Rath[74] in 1971 used a daily intake of 2,250 calories per person to define the poverty line for India. Using NSSO data regarding household expenditures for 1960–61, they determined that in order to achieve this food intake and other daily necessities, a rural dweller required an annual income of ₹ 170.80 per year (₹ 14.20 per month, adjusted to 1971 Rupee). An urban dweller required ₹ 271.70 per year (₹ 22.60 per month). They concluded from this study that 40 percent of rural residents and 50 percent of urban residents were below the poverty line in 1960–61.[75]

Poverty alleviation has been a driver for India's Planning Commission's Task Force on Projections of Minimum Needs and Effective Consumption Demand of the Perspective Planning Division. This division, in 1979, took into account differences in calorie requirements for different age groups, activity levels, and sex. They determined that the average rural dweller needed around 2400 calories, and those in urban areas required about 2100 calories per person per day. To satisfy the food requirement, the Task Force estimated that a consumer spending in 1973–74 of Rs.49.09 per person per month in rural areas and Rs.56.64 in urban areas was appropriate measure to estimate its poverty line.[76]

Poverty remained stubbornly high in India through the 1970s and 1980s. It created slogans such as Garibi Hatao (meaning eliminate poverty) for political campaigns, during elections in early 1970s through the 1980s.[77] Rural poverty rate exceeded 50%, using India's official poverty line for 1970s.[78][79]

Another Expert Group was instituted in 1993, chaired by Lakdawala, to examine poverty line for India. It recommended that regional economic differences are large enough that poverty lines should be calculated for each state. From then on, a standard list of commodities were drawn up and priced in each state of the nation, using 1973–74 as a base year. This basket of goods could then be re-priced each year and comparisons made between regions. The Government of India began using a modified version of this method of calculating the poverty line in India.[80]

There are wide variations in India's poverty estimates for 1990s, in part from differences in the methodology and in the small sample surveys they poll for the underlying data. A 2007 report for example, using data for late 1990s, stated that 77% of Indians lived on less than ₹ 20 a day (about US$0.50 per day).[81] In contrast, Datt estimated India's national poverty rate to be 35% in 1994, at India's then official poverty line of Rs 49 per capita, with consumer price index adjusted to June 1974 rural prices.[79]

The Saxena Committee report, using data from 1972 to 2000, separated calorific intake apart from nominal income in its economic analysis of poverty in India, and then stated that 50% of Indians lived below the poverty line.[82] The Planning Commission of India, in contrast, determined that the poverty rate was 39%.

The National Council of Applied Economic Research estimated that 48% of the Indian households earn more than ₹90,000 (US$1,378.40) annually (or more than US$ 3 PPP per person). According to NCAER, in 2009, of the 222 million households in India, the absolutely poor households (annual incomes below ₹45,000 (US$690)) accounted for only 15.6% of them or about 35 million (about 200 million Indians). Another 80 million households are in the income levels of ₹45,000 (US$690) to ₹90,000 (US$1,400) per year. These numbers are similar to World Bank estimates of the "below-the-poverty-line" households that may total about 100 million (or about 456 million individuals).[83]

The Suresh Tendulkar Committee set up to look into the people living under the poverty line in India submitted its report in November 2009.[84] It provided a new method of calculating the poverty line based on per capita consumption expenditure per month or day. For rural areas, it was Rs 816 per month or Rs 27 per day. For urban areas, it was Rs 1000 per month or Rs 33 per day. Using this methodology, the population below the poverty line in 2009-2010 was 354 million (29.6% of the population) and that in 2011-2012 was 269 million (21.9% of the population).[85]

In its annual report of 2012, the Reserve Bank of India named the state of Goa as having the least poverty of 5.09% while the national average stood at 21.92%[9] The table below presents the poverty statistics for rural, urban and combined percentage below poverty line (BPL) for each State or Union Territory.[9] The highest poverty statistics for each category column is coloured light red in the table below.

The World Bank has reviewed its poverty definition and calculation methodologies several times over the last 25 years. In early 1990s, The World Bank anchored absolute poverty line as $1 per day. This was revised in 1993, and the absolute poverty line was set at $1.08 a day for all countries on a purchasing power parity (PPP) basis, after adjusting for inflation to the 1993 US dollar. In 2005, after extensive studies of cost of living across the world, The World Bank raised the measure for global poverty line to reflect the observed higher cost of living.[7] Thereafter, the World Bank determined poverty rates from those living on less than US$1.25 per day on 2005 PPP basis, a measure that has been widely used in media and scholarly circles.

In May 2014, after revisiting its poverty definition, methodology and economic changes around the world, the World Bank proposed another major revision to PPP calculation methodology, international poverty line and indexing it to 2011 US dollar.[2] The new method proposes setting poverty line at $1.78 per day on 2011 PPP basis. According to this revised World Bank methodology, India had 179.6 million people below the new poverty line, China had 137.6 million, and the world had 872.3 million people below the new poverty line on an equivalent basis as of 2013. India, in other words, while having 17.5% of total world's population, had 20.6% share of world's poor.[1][2] In October 2015, the World Bank updated the international poverty line to US$1.90 a day.

The Rangarajan Committee set up to look into the poverty line estimation in India submitted its report in June 2014.[86] It amended the calculation of the poverty line based on per capita consumption expenditure per month or day given by the Tendulkar Committee.[87] The new poverty threshold for rural areas was fixed at Rs 972 per month or Rs 32 per day. For urban areas, it was fixed at Rs 1407 per month or Rs 47 per day. Under this methodology, the population below the poverty line in 2009-2010 was 454 million (38.2% of the population) and that in 2011-2012 was 363 million (29.5% of the population).[88]

Other measures such as the semi-economic Multi-dimensional Poverty Index (MPI), which places 33% weight on education and number of schooling years in its definition of poverty, and places 6.25% weight on income and assets owned, suggests there were 650 million people (53.7% of population) living in MPI-poverty in India.[8] 421 million of MPI-defined poor are concentrated in eight North Indian and East Indian states of Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Orissa, Rajasthan, Uttar Pradesh and West Bengal. The table below presents this semi-economic poverty among the states of India based on the Multi-dimensional Poverty Index, using a small sample survey data for Indian states in 2005.[89]

Map of world poverty by country, showing percentage of population living on less than $2 per day in 2008, according to the World Bank.

According to a 2011 poverty Development Goals Report, as many as 320 million people in India and China are expected to come out of extreme poverty in the next four years, with India's poverty rate projected to drop from 51% in 1990 to about 22% in 2015.[90] The report also indicates that in Southern Asia, only India is on track to cut poverty by half by the 2015 target date.[90] In 2015, according to United Nation's Millennium Development Goals (MGD) programme, India has already achieved the target of reducing poverty by half, with 24.7% of its 1.2 billion people in 2011 living below the poverty line or having income of less than $1.25 a day, the U.N. report said. The same figure was 49.4% in 1994. India had set a target of 23.9% to be achieved by 2015.[91]

According to Global Wealth Report 2016[92] compiled by Credit Suisse Research Institute, India is the second most unequal country in the world with the top one per cent of the population owning 58% of the total wealth.[93]

Global Hunger Index

Global Hunger Index (GHI) is an index that places a third of weight on proportion of the population that is estimated to be undernourished, a third on the estimated prevalence of low body weight to height ratio in children younger than five, and remaining third weight on the proportion of children dying before the age of five for any reason. According to 2011 GHI report, India has improved its performance by 22% in 20 years, from 30.4 to 23.7 over 1990 to 2011 period.[94] However, its performance from 2001 to 2011 has shown little progress, with just 3% improvement. A sharp reduction in the percentage of underweight children has helped India improve its hunger record on the Global Hunger Index (GHI) 2014. India now ranks 55 among 76 emerging economies. Between 2005 and 2014, the prevalence of underweight children under the age of five fell from 43.5% to 30.7%.[95]

The subject of the economic impact of British imperialism on India remains contentious. The issue was raised by British Whig politician Edmund Burke who in 1778 began a seven-year impeachment trial against Warren Hastings and the East India Company on charges including mismanagement of the Indian economy. Contemporary historian Rajat Kanta Ray argues the economy established by the British in the 18th century was a form of plunder and a catastrophe for the traditional economy of Mughal India, depleting food and money stocks and imposing high taxes that helped cause the famine of 1770, which killed a third of the people of Bengal.[98]

Despite significant economic progress, one quarter of the nation's population earns less than the government-specified poverty threshold of ₹32 per day (approximately US$ 0.6).[102]

According to the 2001 census, 35.5% of Indian households used banking services, 35.1% owned a radio or transistor, 31.6% a television, 9.1% a phone, 43.7% a bicycle, 11.7% a scooter, motorcycle or a moped, and 2.5% a car, jeep or van; 34.5% of the households had none of these assets.[103] According to Department of Telecommunications of India the phone density reached 73.34% by December 2012 and as an annual growth decreased by −4.58%.[104] This tallies with the fact that a family of four with an annual income of ₹137,000 (US$2,100) could afford some of these luxury items.

The World Bank's Global Monitoring Report for 2014-15 on the Millennium Development Goals says India has been the biggest contributor to poverty reduction between 2008 and 2011, with around 140 million or so lifted out of absolute poverty.[105] Since the early 1950s, Indian government initiated various schemes to help the poor attain self-sufficiency in food production. These have included ration cards and price controls over the supply of basic commodities, particularly food at controlled prices, available throughout the country. These efforts prevented famines, but did little to eliminate or reduce poverty in rural or urban areas between 1950 and 1980.[106]

One of the main reasons for record decline in Poverty is India's rapid economic growth rate since 1991.[17][18][107] Another reason proposed is India's launch of social welfare programs such as Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) and Midday Meal Scheme in Government Schools.[citation needed] Klonner and Oldiges, in a 2012 study, conclude that MGNREGA helps reduce rural poverty gap (intensity of rural poverty), seasonal poverty, but not overall poverty.[108][109] However, there is a disturbing side, as deprivation has tended to increase, and that too among the most deprived sections. According to the latest statistics published by the Census of India; in scheduled tribe category 44.7 per cent people were farmers working on their own land in 2001; however this number came down to 34.5 per cent in 2011. In case of scheduled castes this number declined from 20 per cent to 14.8 per cent during the same period. This data is corroborated by another data from census, according to which number of people who were working not on their own land but on others' land (landless laborers), increased from 36.9 per cent in 2001 to 44.4 per cent in SC category and from 45.6 per cent to 45.9 per cent in case of ST category.[110]

^Erenstein (2011), Livelihood Assets as a Multidimensional Inverse Proxy for Poverty: A District‐level Analysis of the Indian Indo‐Gangetic Plains, Journal of Human Development and Capabilities, 12(2), pp. 283-302.

^Rajat Kanta Ray, "Indian Society and the Establishment of British Supremacy, 1765–1818," in The Oxford History of the British Empire: vol. 2, The Eighteenth Century ed. by P. J. Marshall, (1998), pp 508–29.